The Right’s New “Welfare Queens”: The Middle Class

Two weeks ago, I was invited to testify before the Senate Finance Committee on the subject of the economic problems of the middle class. Senator Ron Wyden, of Oregon, who became chairman of the committee in February, let me know that he wanted someone to bring news from outside Washington to the hearing. He wanted me to tell a few of the stories about hard-pressed Americans from my book “The Unwinding,” to help him steer the committee’s agenda in a new direction. This isn’t the sort of request I regularly receive, so I said yes.

There were four other panelists that Thursday morning at the committee-room table in the Dirksen Senate Office Building: the chief economist of the small-business lobby; the director of the left-leaning Tax Policy Center; an economist from a Chicago financial-services firm; and Lawrence Lindsey, who was a top economic adviser to George W. Bush and an architect of the huge 2001 and 2003 tax cuts, and is now a consultant in Washington. Looking down from the dais were Wyden and the committee’s ranking Republican, Orrin Hatch, of Utah, along with a handful of other committee members who were present at various points during the hearing: the Republicans Charles Grassley, of Iowa, and John Thune, of South Dakota, as well as the Democrats Debbie Stabenow, of Michigan; Sherrod Brown, of Ohio; and Michael Bennet, of Colorado.

I said my bit, as did the other witnesses. Then came the questions. Congressional hearings are not the place for truth to emerge, or even for a sustained inquiry into the truth. They are performances, and each actor already has his or her lines memorized—especially the senators, whose questions direct the flow of discussion, and who rarely seem interested in building on or digging deeper into what has gone before. By the end of this hearing, there was no question which character’s voice dominated: it was Lindsey’s, perhaps because he was more familiar with the workings of Washington than the other witnesses were. But I don’t think he pushed the discussion in the direction that Wyden had hoped.

Lindsey’s argument was this: income inequality has risen under every President since Nixon; it rose most dramatically under Clinton. Neither party has been able to solve this problem, so our expectations should be very modest. In spite of large government transfers from the rich to the poor since the nineteen-sixties, and in spite of the rich paying a higher proportion of total income taxes now than they did in 1980, inequality keeps going up. The reason, Lindsey concluded, is the decline in “middle-aged labor-force participation,” especially among men, in the past few years. In other words, lots of people in their thirties, forties, and early fifties have chosen to stop working. In Lindsey’s blunt phrase—which he subsequently denied using—they have chosen not to be self-reliant. They have dropped out of the workforce because tax rates are onerous and government benefits are attractive; they have less incentive to work than to be unemployed. This, the former President’s adviser suggested, is the main cause of inequality: more and more formerly employed people just don’t want to work. It was an updated version of Ronald Reagan’s freeloading welfare queens—only now they’re white and middle class.

As for solutions, Lindsey said that nothing the government is trying has worked. He kept urging “modesty” on the senators, which began to sound like “Don’t do anything.” But he had one idea, which he presented as if it had never been tried before: tax cuts for the rich.

There were a lot of holes to poke in Lindsey’s charts and figures. In talking about the share of taxes paid by the rich, he harped on income tax and neglected to mention changes to many other taxes—the payroll tax, and taxes on capital gains and dividends—that have made the tax system, over all, less progressive rather than more in the past generation. In discussing the growth of inequality under different Presidents, Lindsey didn’t acknowledge that it soared with the Bush tax cuts before dropping at the end of his Presidency, owing to the recession that began in December, 2007 (which Hatch called “the 2009 recession,” neatly pinning the whole thing on President Obama). Throughout his testimony, Lindsey never mentioned what many economists consider a key factor in the rise of inequality: wage stagnation—the flattening of average real wages for American workers since the nineteen-seventies. That’s like analyzing the Great Depression without mentioning the Wall Street crash.

But, because hearings are performances rather than inquiries into the truth, the holes in Lindsey’s numbers went unpoked, and his argument was almost unchallenged, except by Debbie Stabenow, who pointed out that almost all the voters she heard from in high-unemployment Michigan still wanted to work. As for the Republicans, they seized on Lindsey’s testimony with almost visible relief. Inequality, as a fact and a topic of discussion, has become so glaring that even Republican politicians like Eric Cantor, the House Minority Leader, have felt compelled to address it. What a godsend to find out that the problem is really a “decline in middle-aged labor-force participation.” “It’s hard for me to understand why anyone wouldn’t want to work,” Orrin Hatch, apparently amazed, told Lindsey. “I’ve worked since I was six years old.”

Unfortunately for Lindsey, a trove of information about inequality that upends all his assumptions has recently become available. There’s a new report by the International Monetary Fund—hardly a hotbed of economic radicalism—which suggests that inequality is actually a deterrent to economic growth, and proposes just the kind of redistributive policies that Lindsey thinks are responsible for inequality in the first place. There is also a landmark book published earlier this month, “Capital in the Twenty-first Century,” by the French economist Thomas Piketty, which brings a ton of data to bear in reaching the commonsensical conclusion that inequality has to do with more than just blind market forces at work. “A quick glance at the curves describing income and wealth inequality or the capital/income ratio,” Piketty writes, “is enough to show that politics is ubiquitous and that economic and political changes are inextricably intertwined and must be studied together.”

In other words, huge advantages in capital create huge advantages in political power. This is why, when Wyden asked each of the witnesses before the committee for one idea to solve the problems of the middle class and income inequality, mine was campaign-finance reform. It’s hardly original, and I don’t expect it to be passed anytime soon, but I wasn’t invited as an expert on Washington dealmaking. (The witness from the Tax Policy Center, Leonard Burman, had an equally radical, and less familiar, idea: to index tax brackets so that they are adjusted in line with levels of inequality, rather than with inflation.)

It doesn’t require decades of work by a leading economist to understand that there’s a connection between wealth and power. It should be clear from stories like the one written by Steven Greenhouse in the New York Times earlier this month, about the struggles of low-wage workers, that hard work no longer keeps millions of Americans out of poverty. It should be obvious to anyone who talks to ordinary Americans. The idea that the main cause of inequality is Americans who choose not to work because it’s more attractive to live off the government could only occur to someone who has spent his career inside Washington think tanks and the White House.